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Tuesday, November 23, 2021

Investors Offer a Solution for the Climate-Vulnerable Poor Countries

According to Bloomberg News, a “powerful temptation” that is doing the rounds is a belief that with the help of financial wizardry, the problem of global warming can be solved. Not much is being incurred on the green projects and the available funds are not being used for the developing nations that require them most. This is one reason why it is a topic of hot discussion at the COP26 meet at the Glasgow Summit to speak about the concept of “blended finance“, the idea wherein a little public money can be made use of for the mobilization of a larger amount of private money like sources from pension funds and asset owners. 

By the utilization of the right kind of instruments or tools, it is thought that the world will get decarbonized quite fast so that the worst impacts of climate change can be kept at bay, reports Bloomberg News. However, the reality is not that. 

As per research from Overseas Development Institute, in countries with low income, every dollar that is lent by the major multilateral development banks can mobilize around 37 cents of the private money. The track record is worrying wherein the International Energy Agency and the UN Intergovernmental Panel on Climate Change assess that at least $1 trillion per year is required to attain the goal of the Paris Agreement that states that the temperatures must be prevented from rising 1.5 degrees Celsius from the pre-industrial levels. 

The BlackRock Inc financiers suggest tackling the shortfall. The investment institute of the company’s proposal is that the richer countries must offer not to lend $100 billion per year to the less rich or the poorer countries so that more private finance for investment can be encouraged in clean energy and industry. 

A considerable amount of money in the form of loans has been channeled into the developing countries to date. Data obtained from the Organization for Economic Cooperation and Development indicates that about $16.7 billion of money related to climate expense was extended as grants in 2019. 

The argument of BlackRock is the so-called, “no-strings-attached” attitude and approach must cater to the “broader reputational risks around investing in particular countries” since the attempts in the past have been to address individual projects and not mitigate risks on a broader scale. 

In other words, BlackRock is addressing not just minimizing the risk of certain projects but countries and even sectors. The company argues that investors must be protected from risks like “political stability and legal enforcement” and for this, it wants to set up dedicated market green emerging investment banks and go for a minimum price on underwriting on pollution. 

By minimizing the perception of risk in developing markets, would improve the possibilities for the investors. BlackRock revealed this week that the company raised $673 million towards an emerging market climate infrastructure fund that has exceeded its target of $500 million. 

Nor is BlackRock just a bystander in the world’s financial system and it is not just the largest asset manager. But it is also an influencer of the financial system of the world. The company has offered to advise the US Federal Reserve related to the purchase of bonds in the initial stages of the pandemic and has offered guidance to the European Commission on requirements of sustainability in the rules of banking. 

On the first day of COP26, Minister Mia Mottley, the Barbadian Prime Minister called for $500 billion towards annual allocations to IMF Special Drawing Rights to offer assistance to the poor countries. According to Bloomberg News, Avinash Persaud, her special envoy for investments and financial services stated that there already is a proposal for $50 billion of the latest Covid issuance of SDR that is to go to the “yet to be” formed IMF facility dedicated for climate action. 

As the debates carry on the extreme weather conditions only make the condition worse across the globe. In the meantime, the faster post-pandemic economic recovery in the developed countries is stoking inflation and rising rates of interest, reports Bloomberg News.

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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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